A forfeited share is an equity share investment which is cancelled by the issuing company. A share is forfeited when the shareholder fails to pay the subscription money called upon by the issuing company.
These shares can be reissued at par, at premium or at discount. Generally, these shares are reissued at a discount i.e. at a price which is less than its nominal value. The amount of discount allowed at the time of reissue in no case should be more than the amount forfeited on such shares.
There are four situations in which re-issue of shares take place.
- Forfeited shares reissued at discount when originally issued at par.
- Shares reissued at par or at premium, when originally issued at par.
- Forfeited shares reissued at par, at discount and at premium when originally issued at premium.
When Forfeiture of shares Issued at Par
The company debits the Share Capital Account with the amount called-up up to the date of forfeiture on shares. It credits the Shares Allotment Amount or Shares Call Account with amount called-up on forfeited shares but due from the shareholders.
Issue of Shares
The shares will be at par is when the shares are sold at their nominal value. Shares sold at a premium cost more than their nominal value, and the amount in excess of the face value is the premium.
The shares are reissued as fully paid up to one of the directors @ Rs 9 per share. No entries are made on forfeiture but when the shares are reissued, the cash received is credited to Equity Share Capital Account.
ADVERTISEMENTS: Accounting Entries Regarding Reissue of Forfeited Shares! The forfeited shares can be reissued by the company at any price. But in no case, the amount collected on the reissue of such shares plus the amount already forfeited be less than the amount credited as paid upon reissue of shares.
10% of the capital reissued.